1. 2 contents part i. global competitiveness programme what are we trying to achieve? the global...

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The Global Competitiveness Programme:

An International Perspective

Augusto Lopez-Claros

Chief Economist Director, Global Competitiveness Programme

World Economic Forum Geneva, Switzerland

March, 2004

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Contents

Part I. Global Competitiveness Programme

• What are we trying to achieve?

• The Global Competitiveness Report

• Results and analysis

Part II. Hungary: Results from 2003-2004

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Part I. Global Competitiveness Programme:What are we trying to achieve?

GDP per capita, current US$

0

2000

4000

6000

8000

10000

12000

Source: IMF World Economic Outlook

South Korea:Ghana Ratio in 1970= 1:1 Ratio in 2004= 30:1

GHANA

KOREA

HUNGARY

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Part I. Global Competitiveness Programme:What are we trying to achieve?

GDP per capita, current US$

0

5000

10000

15000

20000

25000

30000

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

Source: IMF WEO

Nigeria:SingaporeRatio in1970=1:8

Ratio in 2004=1:76

NIGERIA

SINGAPORE

ARGENTINA

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What are we trying to achieve?

We would like to cast some light on the factors that help explain

these differences and their relative importance.

Why is it that South Korea and Ghana’s GDP per capita have

diverged to such an extent in the last 4 decades?

What factors are crucial to enhancing the capacity of an economy

to achieve sustained growth over the medium term, controlling for

the current level of development ? Why is it that oil-rich Nigeria

lags far behind the city-state of Singapore?

The Growth Competitiveness Index (GCI) attempts to identify

robust indicators of the health of a nation’s economy and its

ability to grow on a sustained basis.

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Evaluates the potential for sustained economic growth of 102

economies worldwide and ranks them accordingly

Assesses the comparative strengths and weaknesses of the

major economies of the world

Is the world’s leading global monitor of the competitive condition

of economies

What are we trying to achieve?

The Global Competitiveness Report

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In the Global Competitiveness Report:

Competitiveness is defined as

An economy’s propensity to attain sustained economic

growth in the medium to long term (over the coming 5 to 8

years)

Competitiveness is not

A country’s share of the world market for its products


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Why is it important?

Competitiveness leads to growth

Few things matter more for the welfare of a country’s citizens

than the aggregate growth rate of the economy

The challenge is to create the conditions for rapid and

sustained economic growth


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The three determinants of competitiveness are:

1. Technology

2. Quality of Public Institutions

3. Macroeconomic Environment

The Growth Competitiveness Index measures the current

condition of these three determinants


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The two sources:

Annual Executive Opinion Survey data

Publicly available data


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Executive Opinion Survey

Captures perceptions of the current operating environment

from a representative sample of business leaders in each

country

Respondents compare their own operating environments with

global standards on a wide range of dimensions


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The goal is not to predict economic growth in

102 miscellaneous economies

The goal is to identify and analyze the strengths and

weaknesses of the economies included in our sample


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Growth Competitiveness Index

Technology Transfer Sub-Index

Information & Communications

Technology Subindex

Technology IndexMacroeconomic

Environment IndexPublic Institutions

Index

Contracts and law Sub-Index

Corruption Sub-Index

Macroeconomic stability Sub-Index

Innovation Sub-Index

Country CreditRating

GovernmentWaste


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Top 10 rankings (out of 102)

Results and Analysis

Top 10 transition economies (out of 102)

COUNTRY GCIFinland 1United States 2Sweden 3Denmark 4Taiwan 5Singapore 6Switzerland 7Iceland 8Norway 9Australia 10

RANKING GCIEstonia 22Slovenia 31Hungary 33Latvia 37Czech Republic 39Lithuania 40Slovak Republic 43China 44Poland 45Croatia 53

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In the 2003 Survey, Finland emerges as the most competitive

economy in the world. It performes well not only in terms of overall

macroeconomic management but also scores very high on those

measures which assess the quality of its public institutions. Finland,

as do most Scandinavian countries, exhibits very low levels of

corruption and its firms operate in a legal environment where there is

widespread respect for contracts and the rule of law. RANKING Finland

GCI 1

Macro environment 2

Public institutions 2

Technology 2

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In the USA, which scores 2nd on the GCI, performance is a little more uneven. The country exhibits primacy in the area of technology, with specially high scores for such indicators as company spending on R&D, the creativity of the scientific community, personal computer use and internet penetration rates. However, this is offset by lower scores on the public institutions and macroeconomic environment indexes.

RANKING USA

GCI 2

Technology 1

Public inst. 17

Macro envir. 14

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What are some key insights that can be gained from the results of

the 2003 GCI?

(1) A strong macro performance without strong public institutions

does not equal a competitively placed economy.

This is well demonstrated by examples such as China. The country

has a relatively strong macroeconomic performance, but performs

poorly on the public institutions index. RANKING CHINA

GCI 44Macro envir. 25Public inst. 52Technology 65

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Furthermore, strong growth and stability at the present time offer

no guarantee of a sustainable performance. This would be a

particularly valuable lesson for countries such as the Russian

Federation which have exhibited strong growth, and an

improved fiscal and balance-of-payments performance over the

past five years. Its recovery from crisis has been impressive but

sustained growth will be difficult without substantial improvement

in the quality of its public institutions, where Russia clearly ranks

low:

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(2) Openness and sustained economic reforms are important for

increased competitiveness.

Countries such as Estonia, Hungary, Latvia and Slovenia are examples

of the benefits of coherent policies implemented over prolonged

periods of time. Estonia is the only country that has had to introduce

agricultural subsidies and import duties to join the EU.

Ranking Estonia Hungary Latvia SloveniaGCI 22 33 37 31

Macro 34 38 36 37Public Institutions 28 33 45 35

Technology 10 32 26 24

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(3) Globalization is important, but so is the domestic policy

environment.

Chile and Argentina have long faced the same external environment

yet the two neighbours display a 50-country gap in their ranks in the

GCI. There may well be many forces outside the control of

governments, but a great deal can be achieved by good

macroeconomic management and sustained, coherent reforms. RANKING Chile Argentina

GCI 28 78Macro envir. 35 93Public inst. 19 88Technology 31 45

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Growth Competitiveness Index: Hungary among the transition economies

RANKING GCI TechnologyPublic

institutionsMacro

environmentEstonia 22 10 28 34Slovenia 31 24 35 37Hungary 33 32 33 38Latvia 37 26 45 36Czech Republic 39 21 47 39Lithuania 40 36 41 41Slovak Republic 43 33 51 50China 44 65 52 25Poland 45 34 58 49Croatia 53 41 67 55Vietnam 60 73 61 45Bulgaria 64 63 62 73Russian Federation 70 69 81 61Romania 75 55 86 81Serbia 77 66 77 87Macedonia 81 70 93 80Ukraine 84 84 94 70

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Part II. Hungary: Results from 2003-2004The Macroeconomic Environment Index

Hungary is placed 5th (out of 17) among the transition economies and 38th in the world

Country

Macroeconomic Environment

Index

Macroeconomic Stability

Subindex

2.01 Recession

Expectations

8.05 Access to

credit 3.28

Inflation

3.3 Interest

rate

3.29 Real Exchange

rate3.24 Govt surplus

3.26 Savings

rateCountry

Credit Rating Waste

China 25 4 7 63 5 20 94 48 2 34 35

Estonia 34 25 6 5 57 31 84 10 58 36 26

Latvia 36 12 3 10 24 41 88 41 32 44 28

Slovenia 37 53 56 12 78 43 39 44 26 29 31

Hungary 38 66 37 25 69 12 78 86 52 30 41

Czech Republic 39 27 35 26 20 27 85 61 40 32 71

Lithuania 41 14 11 8 9 48 100 29 70 46 57

Vietnam 45 16 1 21 56 11 52 71 7 67 40

Poland 49 62 67 73 24 52 80 72 79 33 65

Slovak Republic 50 44 24 9 50 23 74 82 37 43 64

Croatia 55 51 59 15 32 77 51 78 51 49 59

Russian Federation 61 61 34 49 93 76 62 12 10 55 76

Ukraine 70 42 51 64 12 94 96 13 17 78 85

Bulgaria 73 76 75 75 72 55 91 24 80 57 86

Macedonia 80 67 85 89 37 65 6 66 97 83 79

Romania 81 81 47 60 98 74 86 43 53 66 96

Serbia 87 86 77 68 95 90 9 65 95 93 56

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Part II. Hungary: Results from 2003-2004Public Institutions Index

Hungary is placed 2nd (out of 17) among the transition economies and 33rd in the world

Country

Public Institutions

Index

Contracts and Law Subindex

Judicial Independenc

eProperty

rights

Favoritism in decisions

of government

officialsorganized

crimeCorruption Subindex

Irregular payments in exports & imports

Irregular payments in public utilities

Irregular payments in tax collection

Estonia 28 32 22 32 29 41 27 27 31 26Hungary 33 39 29 37 67 46 28 33 30 22Slovenia 35 43 45 46 49 37 32 31 33 29Lithuania 41 58 65 51 38 65 34 40 32 36Latvia 45 44 47 48 24 51 49 51 49 50Czech Republic 47 61 46 72 68 62 41 41 39 45Slovak Republic 51 70 68 60 76 78 40 60 34 38China 52 60 62 64 43 60 50 43 60 52Poland 58 66 51 69 69 74 53 52 57 49Vietnam 61 54 53 62 31 61 61 76 64 64Bulgaria 62 92 78 92 87 93 35 35 44 31Croatia 67 81 79 90 73 71 54 57 53 54Serbia 77 77 80 87 50 79 74 78 82 63Russian Federation 81 91 81 96 81 87 75 87 79 59Romania 86 83 82 79 93 67 90 98 86 70Macedonia 93 96 88 99 78 99 86 91 76 74Ukraine 94 94 83 100 82 91 89 94 74 89

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Part II. Hungary: Results from 2003-2004Technology Index: Innovation subindex

Hungary is placed 5th (out of 17) among the transition economies and 32nd in the world

CountryTechnology

IndexInnovation subindex

Technological sophistication

Firm-level technology absorption

Company spending on research and development

University/industry research

collaboration PatentsTertiary

enrollmentEstonia 10 26 24 19 44 41 29 17Czech Republic 21 45 38 53 42 34 30 45Slovenia 24 23 33 46 20 33 26 11Latvia 26 22 31 38 24 32 72 10Hungary 32 38 47 68 67 61 28 36Slovak Republic 33 44 37 26 54 38 36 44Poland 34 29 50 54 45 42 53 19Lithuania 36 30 56 25 40 47 49 23Croatia 41 48 80 35 57 46 32 46Romania 55 56 75 65 76 65 60 52Bulgaria 63 43 79 95 79 80 50 35China 65 70 48 58 29 20 55 78Serbia 66 62 96 86 80 70 72 54Russian Federation 69 27 61 66 70 56 38 8Macedonia 70 63 88 93 83 82 72 53Vietnam 73 69 71 15 30 40 72 75Ukraine 84 36 68 67 81 36 47 33

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Technology Index: ICT subindex



CountryTechnology

IndexICT

subindex

Internet access in schools

Quality of competition in the ISP sector

Government prioritization of

ICT

Government success in

ICT promotion

Laws relating to

ICT MobileInternet Users

Internet hosts

Phone lines PC

Estonia 10 20 13 5 18 12 6 26 16 17 35 28Czech Republic 21 30 29 47 62 77 35 8 31 24 32 35Slovenia 24 26 21 59 58 55 23 13 19 29 30 23Latvia 26 34 28 40 52 43 28 38 40 34 36 30Hungary 32 35 27 94 50 65 49 28 36 27 34 40Slovak Republic 33 37 38 67 75 78 47 32 35 31 43 29Poland 34 41 39 71 84 81 46 41 44 30 37 43Lithuania 36 38 35 58 54 52 45 35 39 33 40 39Croatia 41 39 43 83 49 64 61 36 34 43 31 33Romania 55 54 45 72 73 49 50 59 48 55 53 62Bulgaria 63 49 59 70 88 85 70 56 46 47 33 52China 65 62 54 52 32 24 51 61 58 84 56 72Serbia 66 55 72 91 45 57 65 48 53 56 47 68Russian Federation 69 56 61 80 78 86 76 67 64 50 46 42Macedonia 70 63 63 76 85 89 84 68 68 59 42 #N/AVietnam 73 82 71 85 34 15 54 85 76 95 77 81Ukraine 84 70 77 75 69 82 85 81 84 57 51 73

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Technology Index: Technology Transfer subindex


CountryTechnology

Index

Tech Transfer

Subindex

FDI and technology transfer

Prevalence of foreign technology licensing

Estonia 10 11 3 25Czech Republic 21 5 4 10Slovenia 24 50 63 34Latvia 26 19 28 10Hungary 32 21 6 40Slovak Republic 33 16 5 29Poland 34 26 24 29Lithuania 36 42 40 40Croatia 41 43 64 14Romania 55 38 32 40Bulgaria 63 67 69 65China 65 47 42 44Serbia 66 60 55 55Russian Federation69 69 71 67Macedonia 70 59 59 52Vietnam 73 30 16 44Ukraine 84 71 74 67

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NOTABLE COMPETITIVE ADVANTAGES

RANK/102

Macroeconomic Environment Interest rate spread, 2002 12Extent of distortive government subsidies 14Access to credit 25Country credit rating, 2003 30

Public InstitutionsIrregular payments in tax collection 22Judicial independence 29Irregular payments in public utilities 30

TechnologyFDI and technology transfer 6Internet access in schools 27Internet hosts, 2002 27Utility patents, 2002 28Cellular telephones, 2002 28

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NOTABLE COMPETITIVE DISADVANTAGES RANK/102Macroeconomic Environment

Government surplus/deficit, 2002 86Real exchange rate, 2002 78Inflation, 2002 69National savings rate, 2002 52Public trust of politicians 47Diversion of public funds 41Recession expectations 37

Public InstitutionsFavoritism in decisions of government officials 67Organized crime 46Property rights 37Irregular payments in exports and imports 33

TechnologyQuality of competition in the ISP sector 94Firm-level technology absorption 68Company spending on research and development 67Government success in ICT promotion 65University/industry research collaboration 61Government prioritization of ICT 50Laws relating to ICT 49Technological sophistication 47Prevalence of foreign technology licensing 41Personal computers, 2002 40Tertiary enrollment 36Internet users, 2002 36Telephone lines, 2002 34

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Evolution of Hungary’s position in the GCI over the last three years


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2001 2002 2003

Year

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GrowthCompetitivenessIndexMacroeconomicEnvironmentIndexPublic InstitutionsIndex

Technology Index

1. 2 contents part i. global competitiveness programme what are we trying to achieve? the global...

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